2023 (7) TMI 735 - AT - Income Tax

Nature of expenses - disallowance of consultancy charges as capital expenditure relatable to capital work in progress and not allowable u/s.37(1) - HELD THAT - As part of expenditure is for the loan from where substantial payments were made in respect of capital work in progress and not for existing business or continuing the business. The same has been found to be excludable as capital expenditure and not allowable under Section 37(1) - The same is, therefore, though not capital expenditure but related to incidental to acquisition of plant/machinery for capital work in progress. The appellant himself worked out such disallowance relatable to capital work in progress and therefore finally found not allowable u/s 37 by the Ld. CIT(A), which according to us is just and proper and without any ambiguity, particularly, in the absence of any assistance rendered by the assessee before us. The same is, therefore, upheld. This ground of appeal, thus, fails. Disallowance of interest - Addition on the ground that the same is relatable to capital work in progress - HELD THAT - CIT(A) worked out Rs.44,00,045/- as extended by the appellant towards capital work in progress and working of interest thereon and the same amount, therefore, has been confirmed by the Ld. CIT(A). The reason given by the Ld. CIT(A) as narrated hereinabove seems to be justified in the absence of any assistance rendered by the assessee before us. The same is, therefore, upheld. Disallowance on account of travelling expenses - purpose of travelling was not submitted by the appellant, the details of such travels or the tour since not submitted - HELD THAT - As the impugned amount was not found related to business, the restriction of addition made by the Ld. CIT(A) to the amount of Rs.2,14,419/- is found to be justifiable. The same is, therefore, confirmed. The ground of appeal is, thus, found to be devoid of any merit and, thus, dismissed.

Summary

Issues Involved:
The judgment involves issues related to the disallowance of consultancy charges as capital expenditure, disallowance of interest as pertaining to capital work in progress, and disallowance of travelling expenses.

Disallowance of Consultancy Charges as Capital Expenditure:
The appeal contested the disallowance of consultancy charges as capital expenditure under Section 37(1) of the Income Tax Act, 1961. The appellant argued that the consultancy charges were correctly debited to the Profit & Loss Account as revenue expenditure and claimed as such under Section 36(1)(iii). However, the Assessing Officer (AO) disallowed a part of the consultancy charges paid in connection with a term loan for the purchase of fixed assets, holding it to be capital in nature. The First Appellate Authority upheld this decision, considering the consultancy charges related to loans for capital work in progress. The appellant's contention that the consultancy charges were for the continuation of the existing business and not for new business was not accepted. The judgment cited legal precedents and detailed the nature of the expenditure, ultimately upholding the disallowance of consultancy charges as capital expenditure.

Disallowance of Interest as Pertaining to Capital Work in Progress:
The second ground of appeal concerned the disallowance of interest amounting to Rs.44,89,423, deemed to be related to capital work in progress. The appellant requested direction for capitalization and depreciation on the interest amount. The AO disallowed the interest, emphasizing its connection to capital work in progress. The appellant's contentions regarding the utilization of funds and lack of direct nexus between funds and interest-free funds were not substantiated. The First Appellate Authority confirmed the disallowance of interest, considering the lack of assistance provided by the assessee. The judgment upheld the disallowance of interest as justified in the absence of supporting evidence from the appellant.

Disallowance of Travelling Expenses:
The final issue pertained to the disallowance of Rs.2,14,419 on account of travelling expenses. Initially disallowed by the AO due to lack of submission regarding the purpose of travel, the appellant later provided details during the appellate proceeding. The First Appellate Authority restricted the disallowance to the amount of Rs.2,14,419, after verifying the submitted bills and finding that certain expenses were not related to business purposes. The judgment confirmed the disallowance of the specified amount for non-business-related travel expenses, while directing the deletion of the remaining balance. The ground of appeal regarding travelling expenses was dismissed for lack of merit.

This comprehensive summary outlines the key details and legal analysis of the judgment, addressing each issue involved in the case.